WEBVTT
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The basis for the U.S.-China
trade relationship lies
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in how the two economies
are complementary.
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China's economy has
developed rapidly
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and Chinese wages are growing
- allowing Chinese consumers
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to afford a large and growing
variety of consumer goods.
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Services in China today
are underdeveloped
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but should develop over time.
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Chinese medical services
are so poor
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that many affluent Chinese still
go to Taiwan for medical care,
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even taking their families with
them during long treatments.
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Environmental services are also
immature, as China tackles years
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of accumulated industrial
pollution.
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Likewise, Chinese
financial services -
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like expanded banking,
insurance,
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and investment services -
are still in their infancy.
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Finally, Chinese agriculture
is very inefficient.
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Crop yields need to rise
dramatically as urban centers
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in the eastern part of the
country continue to grow
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and compete with farms
for the available land.
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To build out its
service economy,
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China is likely to
tap U.S. firms.
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U.S. industrial firms
made important inroads
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into China 25 years
ago, and we think
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that U.S. services firms
could enjoy a new wave
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of investment opportunities
in China.
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China is no longer strictly
the home of cheap, plastic toys
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and home electronics assembled
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from parts manufactured
elsewhere.
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U.S. shoppers today can easily
find high-tech Chinese products,
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built from synthetic materials
developed by Chinese scientists.
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Even so, the level of Chinese
wages is likely to remain lower
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than U.S. wages, meaning that
U.S. consumers should continue
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to enjoy lower prices
for Chinese goods
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than for goods made in
other parts of the world.
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The challenge for both countries
is their increasing economic
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and even geopolitical
competition.
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China's government
wants to become a leader
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in new technologies by 2025
and is already competitive
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with many U.S. industrial
leaders.
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And China has expressed a goal
to be the dominant military
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and political power
in East Asia.
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The tariffs that both
countries recently raised
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on each other reflect
the tensions arising
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from their growing
economic, political,
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and military competition.
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That competition is unlikely
to abate but may evolve
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through long-term
negotiations in trade,
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intellectual property
protection,
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and diplomacy in the region.
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From an investment
perspective, we prefer not
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to take international
risks in single countries.
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Fortunately, the growing
economic ties between China
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and its neighbors create
a potentially rewarding
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opportunity more
broadly in Asia.
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We believe that exposure
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to emerging Asia should be an
essential part of any portfolio
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with a growth objective.